Texas Series LLC

Another issue that has not yet been resolved is whether each series must have a separate EIN. Each Series can get an EIN and must if it will have it's own bank account.

The IRS in a Proposed Regulation from 2010 has indicated that each sub-series should be treated a separate entity for federal income tax purposes. Because Texas law does not require separate bank accounts for the various sub-series, it is tempting not to get separate EINs if a sub-series does not need a bank account and will not have employees.

The IRS had this to say about classification of the Series LLC and each sub-series (as of the date of this article, this is a proposed regulation, not a final regulation:

The proposed regulations do not address the entity status or filing requirements of series organizations for Federal tax purposes. A series organization generally is an entity for local law purposes. An organization that is an entity for local law purposes generally is treated as an entity for Federal tax purposes. However, an organization characterized as an entity for Federal income tax purposes may not have an income or information tax filing obligation. For example, §301.6031(a)-(1)(a)(3)(i) provides that a partnership with no income, deductions, or credits for Federal income tax purposes for a taxable year is not required to file a partnership return for that year. Generally, filing fees of a series organization paid by series of the series organization would be treated as expenses of the series and not as expenses of the series organization. Thus, a series organization characterized as a partnership for Federal tax purposes that does not have income, deductions, or credits for a taxable year need not file a partnership return for the year.

In other words, under the proposed regulation above, each sub-series of a Series LLC will be treated as a separate entity for federal income tax purposes. As a result, each sub-series will be classified under the “check-the-box” regulations and may make any federal tax election it is otherwise eligible to make independently of any other sub-series. For example (barring any affirmative elections):

ABC, LLC has two sub-series; ABC, LLC - Series 1 is owned by 1 member; ABC, LLC - Series 2 is owned by 2 members;

ABC, LLC - Series 1 will be treated as a sole proprietorship or disregarded entity and the sole member will report the profits of ABC, LLC - Series 1 on his/her personal 1040.

ABC, LLC - Series 2 will be treated as a partnership and thus will need to file a partnership tax return.

Getting back to the original question...Does the Series LLC and each sub-series need an EIN? The answer seems rather simple: Determine the tax classification of the Series LLC or sub-series and then determine which of them will require an EIN (the answer is almost always "yes" an EIN is needed).

The Texas Business Organizations Code (TBOC) addresses LLC wind ups in two places: Chapter 101 (LLCs) and Chapter 11 (Termination of Domestic Entities).

A basic wind up for a traditional LLC would generally entail three steps: (1) a wind up event, (2) notice to creditors, if any; (3) the filing of a certificate of termination along with a certificate of account status.

Although a Series LLC is an actual filing entity, the various series (think sub-LLCs or cells) are not. As such, it appears that step 3 above would not apply to a series. Section 11.103 of the TBOC confirms this concept: "a nonfiling entity terminates on the completion of the winding up of its business and affairs. Notice of the termination must be provided by the nonfiling entity in the manner provided in the governing documents of the nonfiling entity if notice of termination is required under the governing documents."

While Chapter 11 of the TBOC addresses all domestic entities in general, sections 101.614 through 101.622 of the TBOC focus on the wind up procedures specifically related to a series. Here, we have focused on issues related specifically to a series of a Texas Series LLC.

Wind Up Procedures Specifically Related to a Texas Series

A series and its business and affairs may be wound up and terminated without causing the winding up of the limited liability company. The series terminates on the completion of the winding up of the business and affairs of the series. The LLC shall provide a wind up notice to known claimants in accordance with Section 11.052(a)(2) of the TBOC and in the manner provided in the company agreement, if applicable. The termination of the series does not affect the limitation on liabilities of the series.

Most Series Agreements will include a wind up process that tracks Chapter 11 of the TBOC. If the Series Agreement does not, you will want to look to the Company Agreement and then the TBOC for guidance.